It was only a year ago that the House of Lords delivered a historic ruling which saw damages awards soar for seriously injured accident and medical negligence victims.
The law lords held that those relying on compensation for lifetime care costs and living expenses could not be expected to invest their lump sums on the stock market, with a return of 4 to 5 per cent, but were entitled to go for less risky index-linked gilts, then producing 3 per cent. Therefore compensation awards had to be bigger.
The result boosted the award in one of the test cases - a child with cerebral palsy as a result of a hospital blunder - by£300,000. Now awards seem set to rise still higher because the return on index-linked gilts has been below 2 per cent since mid-December 1998.
The law lords gave great weight to the views of the working party under High Court judge Sir Michael Ogden, which suggests what rate should be assumed as the return on investments in quantifying damages awards.
Now the working party (following a meeting in April when the return on index-linked gilts was only 1.72 per cent) has suggested that the rate should be 2 per cent, a figure which many claimants' lawyers are adopting in quantifying claims.
David Body, medical negligence specialist at Sheffield solicitors Irwin Mitchell, says: 'We've immediately switched on to it and are attempting to use it. Sooner or later a judge will hear evidence on it and decide.'
The law lords urged the Lord Chancellor to fix a rate, but so far he has ignored their call.
Mr Body argues that the Lord Chancellor should give judges power to make an annuity order rather than a lump sum order.
'I believe there will be an enormous temptation for the Lord Chancellor to say the real mischief is bigger and bigger lump sum awards.
'An annuity award based on a lump sum would become conventional wisdom.'
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